Negative balance protection

What happens without it

Price gaps through your stop. The position closes far below where you intended. Losses exceed your deposit, and the account goes negative. Without negative balance protection, that negative figure is a debt you owe the broker.

This is not theoretical. When the Swiss franc peg broke in January 2015, the move was so fast that stops were irrelevant; retail clients across several brokers were left owing money, and at least one brokerage required a rescue.

Where it applies

Jurisdiction	Retail protection
UK and EU	Mandatory
Australia	Mandatory
Offshore entities	Usually absent
Crypto exchanges	Generally absent; insurance funds instead

Note the last row. Crypto venues typically use an insurance fund and auto-deleveraging rather than a legal protection, which means profitable traders can have positions closed to cover someone else's shortfall.

The assumption it quietly breaks

Most retail traders assume the worst case is losing their deposit. That assumption is only true where this protection applies. Offshore, with high leverage and a weekend gap, the worst case is unbounded.

What to do with this

• Confirm it applies to the entity holding your account, in writing, before funding.
• If it does not, reduce leverage and avoid holding leveraged positions over weekends and major events.
• Treat its absence as a reason to keep less capital at that venue, not as a detail.